AP
- Citi cut its Apple price target and lowered its iPhone sales estimates due to US-China trade risk.
- The firm’s adjustments follow a litany of other Wall Street analysts’ similarly cautious trade-war-related reports and broader concerns of China’s slowing economy.
- Apple shares have slumped 11% this month, and are trading at a two-month low.
- Watch Apple trade live.
Wall Street’s warnings about Apple‘s business in China are growing louder.
The technology giant’s iPhone sales could get cut in half during the second part of this year as a direct result of the escalated trade tensions between the US and China, according to a Sunday report from Citi.
That view prompted the bank to lower its estimates for iPhone sales in China for the remainder of 2019 and to trim its price target for the second time this year.
The bearish note follows a host of other Wall Street firms’ similarly stark warnings about Apple’s sales in the critical Chinese market. The fears underscore a broader concern about China’s economic slowdown.
While analysts have for months sounded off about Apple facing headwinds in China, the warnings have come quickly in recent weeks as the US-China trade war has escalated.
"We are proactively slashing our iPhone unit sales as we believe the US/China trade situation will result in a slowdown of Apple iPhone demand in China as China residents shift their purchasing preference to China national brands," Citi analyst Jim Suva, who held his longtime "buy" rating, wrote in a client note.
"Our independent due diligence shows a less favorable brand image desire for iPhone which has very recently deteriorated."
Suva cut his sales and earnings-per-share estimates, pointing to the fact that China represents 18% of Apple’s iPhone sales. While he had previously forecasted sales of nearly 14.5 million iPhones in the second half of this year, he now sees just over 7.2 million units sold. Suva also cut his 2020 estimates by roughly half.
Earlier this month, the US exacerbated the trade war between the two economic powerhouses when it banned technology from the Chinese telecommunications company Huawei. The Commerce Department later said it would temporarily relax some of the restrictions.
Analysts fear China could retaliate against the US, hurting technology companies like Apple.
"Data through April shows Apple continued to gain market share of the smartphone installed base in China, however worsening trade tensions puts share gains in the rest of the June quarter into question," Morgan Stanley said Sunday in a sweeping report on the state of Apple’s business in China.
Morgan Stanley
"In the event Apple products are not given an exemption from the final round of tariffs on Chinese exports to the US, we see a 20-25% EPS hit in FY20 in the worst case scenario," the Morgan Stanley analysts wrote.
Elsewhere on Wall Street, HSBC and UBS both cut their Apple price targets last week. It was the fourth time HSBC lowered its price target in the last six months.
UBS, for its part, said Apple could indirectly suffer from the US blacklisting Huawei.
"Negotiations between US/China are ongoing and an extension has been granted for some critical items, but we do think a nationalistic movement — similar to the one we saw at the time of the arrest of Huawei’s CFO in November — seems quite probable and would impact iPhone sales," UBS analyst Tim Arcuri wrote.
Apple shares have fallen 11% this month, and trade near a two-month low near $178 a share.
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Source: Business Insider – rungarino@businessinsider.com (Rebecca Ungarino)